Geography/ Analysis On Bulgaria term paper 18677

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External historical events often changed Bulgaria's national boundaries in its first century

of existence, natural terrain features defined most boundaries after 1944, and no significant

group of people suffered serious economic hardship because of border delineation. Postwar

Bulgaria contained a large percentage of the ethnic Bulgarian people, although numerous

migrations into and out of Bulgaria occurred at various times. None of the country's borders was

officially disputed in 1991, although nationalist Bulgarians continued to claim that Bulgaria's

share of Macedonia--which it shared with both Yugoslavia and Greece--was less than just

because of the ethnic connection between Macedonians and Bulgarians. In 1991 Bulgaria had a

total border of about 2,264 kilometers. Rivers accounted for about 680 kilometers and the Black

Seacoast for 400 kilometers. Ridges in mainly defined the southern and western borders

high terrain. The western and northern boundaries were shared with Yugoslavia and Romania,

respectively, and the Black Sea coastline constituted the entire eastern border. The Romanian

border followed the Danube River for 464 kilometers from the northwestern corner of the

country to the city of Silistra and then cut to the east-southeast for 136 kilometers across the

northeastern province of Varna. The Danube, with steep bluffs on the Bulgarian side and a wide

area of swamps and marshes on the Romanian side, was one of the most effective rivers

boundaries in Europe. The line through Dobruja was arbitrary and was redrawn several times

according to international treaties. In that process, most inhabitants with strong national

preferences resettled in the country of their choice. Borders to the south were with Greece and

Turkey. The border with Greece was 491 kilometers long, and the Turkish border was 240

kilometers long. Bulgaria covers approximately 110,550 square kilometers. Its topography is

mostly hills combined with plateaus, with major flatlands to the north and the center of the

country. Its main mountain ranges Balkan and Rhodope include two major ranges, Pirin and

Rila. The climate is divided by mountains into continental and Mediterranean. The rainfall is

very variable, with largest amounts in higher elevations.

Its population estimate is 8,989,172. Its 1990 growth rate was negative .35 percent, and

its population density eighty-one per square kilometer. Bulgaria’s official state language is

Bulgarian. There is also a main national minority language witch is Turkish. Bulgaria has many

different ethnic groups. The country is made up of 85% Bulgarians, 8.5% Turks, 2.5% Gypsies,

2.5% Macedonians, 0.3% Armenians, and 0.2% Russians. The country’s religion is 85%

Bulgarian Orthodox, 13% Muslim, 0.8% Jewish, and 0.5% Roman Catholic. There was a

significant increase in public worship and observance of religious holidays beginning in1990.

The country’s health system in post-World War II era became available to large part of

population through a polyclinic system, with all medical services free. In 1990 the state control

was removed to promote diversity and specialization and reduce bureaucracy. There were serious

shortages of medical supplies in the early 1990s. Education is mandatory between the ages of

seven and sixteen. The re was an extensive growth in education system in post-World War II era,

with a rigidly Marxist ideological curriculum. A complete restructuring, modernization, and

depoliticization program in the education system began in 1990.

Why do business in Bulgaria?

Bulgaria has many resources to offer. External investment in Bulgaria was slow right after the

abolishment of communism, but it has been increasing at an accelerated pace since the new

political and economical reforms have been implemented. Some of the resources that Bulgaria

has to offer to its foreign investors are location, high skilled workforce, and low wages.

Bulgaria’s location between Europe and the Middle East gives the country a very strategic

position. Also all land routes from Euro to Asia pass through the country. It is also equidistant

from Europe, the Middle East, and Africa; this would make Bulgaria a perfect location for

manufacturing and distribution to the above mentioned regions.

Culture

The social system in this country is quiet interesting. Most manifestations of traditional

Bulgarian familial and societal relations disappeared in the initial postwar wave of

modernization, but some traditions were persistent and survived into the 1990s, especially in

parts of western and southwestern Bulgaria. Although postwar communist regimes nominally

emphasized emancipation of women, strong elements of paternalism and emphasis on traditional

female roles remained in Bulgarian society. By 1990 economic forces had eliminated traditional

extended families and limited the number of children, especially in urban areas. Some evidence

of resurging traditional relationships was seen in the immediate post-Zhiov years.

Bulgaria has been a crossroads for population movement. Early settlement occurred mainly in

the most fertile agricultural lands. After World War II, however, Bulgarian cities grew rapidly at

the expense of rural population in concert with state industrialization policy.

Administrative Subdivisions

In 1991 Bulgaria was divided into nine provinces. These administrative units included the city of

Sofia and eight provincial districts: Burgas, Khaskovo, Lovech, Mikhaylovgrad, Plovdiv,

Razgrad, Sofiya and Varna. Each province was named for t he city that was its administrative

center. Excluding the city of Sofia, the provinces encompassed territories ranging from 9.5

percent of the country to 17.2 percent, and their population ranged from 7.5 percent to 14 percent

of the national total. The eight provinces were divided into a total of 273 communities. The city

of Sofia was divided into districts. Because this system was established in 1987, references to

another type of district, the okrug remained common in the early 1990s. The new government

that took office in 1991 announced that yet another change was needed in Bulgaria's political

subdivisions because the 1987 system reflected the discredited policies of the Zhiov regime.

The 1985 census recorded Bulgaria's population at 8,948,649, an increase of 220,878 over the

1975 census figure. At the end of 1990, the Central Statistical Bureau had estimated an updated

figure of 8,989,172, including about 100,000 more women than men. However, the estimates for

1989 and 1990 did not account for major emigrations in those years: first the massive emigration

of Turks in 1989, then the emigration of ethnic Bulgarians in 1990. Adjusting for emigration

figures, the population figures actually decreased between 1985 and 1990. Bulgaria's 1989

population density figure of eighty-one people per square kilometer made it one of the least

densely populated countries in Europe. Bulgaria's rate of population growth began a steady

decrease in the mid-1920s, and the trend accelerated thereafter. Before World War II, a man's

status in his community was determined by how many children he had. Women who did not

marry, or who married but had no children, were seen as failures. As the country became more

urbanized, however, such traditional views gradually disappeared. Large families were no longer

the economic necessity they had been in agricultural society, and extra children became a burden

rather than a boon. As women became more educated and less accepting of the traditional

patriarchal family norms, their attitude toward childbearing changed. In 1990 the majority of

Bulgarian women believed two children ideal for a family, but because of economic and social

conditions, their personal preference was to raise only one. By the 1980s, this change in attitude

had begun to prevail even in villages and with less-educated women. In 1985, 75 percent of

Bulgarian women indicated that they would not like to have any more children. Families with

three or more children became a rarity, and women who opted for more than two children had a

lower standard of living and were generally less respected in society. Although few social

planners advocated a return to the large families of the past, Bulgarian policy makers were

dismayed that the population did not increase. During the Zhiov era, the mass media and

scholarly journals expressed concern that the nine millionth Bulgarian had not yet been born, and

that families were unwilling to have two children instead of one. By 1985 population experts

were urging that 30 to 40 percent of families have three children to make up for those, which had

none or only one.

Meanwhile, although the 1973 Politburo had affirmed a family's right to decide how many

children to have and when they should be born, in the 1970s and 1980s contraceptives were not

available in sufficient quantity for family planning. Strict restrictions on abortions established by

the Zhiov regime was repealed in 1990. Partly because contraceptives were in short supply,

abortions had surpassed births by 1985 despite the restrictions. Until 1990 bachelors and

unmarried women had to pay a 5 to 15 percent "bachelors' tax" depending on their age. In a more

positive step, laws provided family allowances for children under sixteen. The age limit for the

family allowance was raised to eighteen in 1990 for children still in school. In 1990 Bulgarian

demographers recorded a negative growth rate for the first time. At that point, the number of live

births per woman were 1.81. Demographers reported that the figure must increase to 2.1 to

maintain the country's natural rate of population replacement. Mortality figures in Bulgaria were

also much higher than those of the developed European countries. The most alarming

demographic trend of the late 1980s, however, was substantially greater emigration totals. The

1989 Turkish exodus caused by the Zhiov assimilation campaigns had a severe impact on the

Bulgarian labor force. Then, in 1990, economic reform brought harsh living conditions that

stimulated a wave of emigration by ethnic Bulgarians. As of March 1991, some 460,000

Bulgarians had emigrated, bringing the total number of Bulgarians living abroad to about 3

million. The majority of the émigré population remained in nearby countries (1.2 million in

Yugoslavia, 800,000 in other Balkan countries, and 500,000 in the Soviet Union). Smaller

numbers went as far as the United States (100,000 to 120,000), Canada (100,000), and Argentina

(18,000), and Australia (15,000). Throughout its history, the Balkan Peninsula was a homeland

for many diverse ethnic groups that were able to preserve their national identities despite being

shifted among the jurisdictions of powerful empires. In modern Bulgaria, the opposite has been

true: the largest minority ethnic group, the Turks, remained in territory that their Ottoman

ancestors had occupied. After the fall of the Zhiov government, Bulgaria moderated its

minority policy substantially to improve delicate relationships with neighboring countries such

as Turkey and Yugoslavia. The 1893 census listed the following nationalities and religious

groups in order of prevalence: Eastern Rite Orthodox Bulgarians, Turks, Romanians, Greeks,

Gypsies, Jews, Muslim Bulgarians, Catholic Bulgarians, Tatars, Gagauzi (a Turkishspeaking

people of the Eastern Orthodox faith), Armenians, Protestant Bulgarians, Vlachs (a Romanian-

speaking people in southwest Bulgaria), and foreigners of various nationalities, mainly Russians

and Germans. Migrations and boundary changes after the two world wars reduced the list

somewhat; few Greeks and Romanians remained in Bulgaria by 1990. However, Bulgaria's

communist leaders often tried to deny the existence of minority groups by manipulating or

suppressing census data or by forcibly assimilating "undesirable" groups. In 1985, at the height

of the last anti-Turkish assimilation campaign, a leading Bulgarian Communist Party official

declared Bulgaria "a one-nation state" and affirmed that "the Bulgarian nation has no parts of

other peoples and nations." After the fall of Todor Zhiov in 1989, all the minorities in Bulgaria

progressed somewhat toward self-determination and freedom of expression. New minority

organizations and political parties sprang up, and minority groups began publishing their own

newspapers and magazines. Non-Bulgarian nationalities regained the right--curtailed in the

Zhiov era--to use their original names, speak their language in public, and wear their national

dress. In 1991 significant controversy remained, however, as to how far the rights of minorities

should extend. Legislators making policy on such issues as approval of non-Bulgarian names and

Turkish-language schools faced mass protests by nationalist Bulgarians, who successfully

delayed liberalization of government policy on those issues. During the Zhiov era, Bulgaria

signed several friendship treaties with other Comecon nations to ease the exchange of workers.

In the 1980s, for example, a large number of Bulgarians worked in the construction and timber

industries of the Komi Autonomous Soviet Socialist Republic under an exchange agreement with

the Soviet Union. Workers were expected to return to their own countries when their contracts

ended, but they did not always do so. For example, some Vietnamese construction workers sent

to Bulgaria under Comecon agreement in the 1980s remained, and in 1991 the Vietnamese

population of Bulgaria was 11,000. Because they arrived completely unprepared for life in

Bulgaria and began working after only one month of training and language courses, the

Vietnamese who remained in Bulgaria generally received the hardest and lowest-paying jobs and

often became involved in criminal activity. In 1991 several violent incidents involving

Vietnamese provoked calls for their repatriation. In response, the government made plans to

expel all resident Vietnamese from Bulgaria in 1992. The Bulgarian Orthodox Church, which

played a crucial role in preserving Bulgarian culture during the Ottoman occupation, remained

central to the sense of Bulgarian nationhood even under the postwar communist regimes. In spite

of the official status of Orthodoxy, Bulgaria also had a tradition of tolerance toward other

Christian religions. Tolerance of Islam, however, remained problematic under all forms of

government because of that religion's historical identification with the occupation and

subjugation of Bulgaria.

In 1991 most Bulgarians were at least nominally members of the Bulgarian Orthodox Church, an

independent national church like the Russian Orthodox Church and the other national branches

of Eastern Orthodoxy. Because of its national character and its status as the national church in

every independent Bulgarian state until the advent of communism, the church was considered an

inseparable element of Bulgarian national consciousness. Baptism, before 1944 an indispensable

rite establishing individual identity, retained this vital role for many even after the communists

took power. The power of this tradition caused the communist state to introduce a naming ritual

called "civil baptism".

Although communist regimes could not eliminate all influence, they did undermine church

authority significantly. First, the communists ruled that the church only had authority on church

matters and could not take part in political life. Second, although the constitution made the

church separate from the state, the clergy's salaries and the fees needed to maintain the churches

were paid by the state. This meant that the clergy had to prove its loyalty to the state. From 1949

until 1989, religion in Bulgaria was mainly controlled by the Law on Religious Organizations,

which enumerated the limitations on the constitution's basic separation of church and state. The

number of Orthodox priests declined from 3,312 in 1947 to 1,700 in 1985. Priests associated

with the prewar regime were accused of engaging in illegal or antisocialist activities, supporting

the opposition, and propagandizing against the state. Upon taking control of all church property,

the state had the choice of maintaining churches or closing them down. Thus, for example, Rila

Monastery, the largest monastery in Bulgaria, became a national museum in 1961. In 1987 the

Orthodox Church had 3,720 churches and chapels, 120 monasteries, 981 regular and 738 retired

priests, 135 monks, and 170 nuns. The church was administered by a Holy Synod. Under

communist rule, the synod had the authority to publish limited quantities of religious material

such as magazines, newspapers, and church calendars. A new translation of the Bible was

published in 1982, but in such small quantities that the size of the printing could not be

determined. By 1988 the 1982 edition was being resold at ten times the original price. After the

fall of Zhiov, the Orthodox Church and other churches in Bulgaria experienced a revival.

Church rituals such as baptisms and church weddings attracted renewed interest, and traditional

church holidays were observed more widely. Christmas 1990, the first Christmas under the new

regime, was widely celebrated and greatly promoted in the mass media. By contrast, Christmas

had received little public attention during the postwar years. The government returned some

church property, including the Rila Monastery, and religious education and Bible study increased

in the early post-Zhiov years. The Orthodox seminary in Sofia returned to its original home in

1990 and attracted over 100 male and female students in its first year of operation. The

Konstantin Preslavski Higher Pedagogical Institute added a new theology department to train

theology, art, and music teachers as well as priests. The Holy Synod planned to publish 300,000

Orthodox Bibles in 1992.

Between independence and the communist era, the Bulgarian government had used its social

welfare funds mainly for government workers, army officers, white-collar workers, craftsmen,

and tradesmen. The 1949 social welfare law founded a new social welfare system that endured

into the 1990s. The new system greatly expanded the categories of people eligible and the

amounts they could receive. The social welfare system in 1991 was largely based on the 1951

section of the Labor Code which regulated monetary compensation and supplements, and the

1957 Law on Pensions. Both laws were revised countless times and no longer agree with each

other. The National Assembly delayed creation of a new law until the new constitution was

ratified in the summer of 1991. In 1991 two-thirds of Bulgaria's social welfare budget was spent

on pensions; the rest went for monthly child-care allowances and other programs. As of late

1990, the Bulgarian government provided over 4 billion leva per year to 2,300,000 pensioners—

almost one fourth of the entire population. To keep pace with the rising cost of living in the

transition to a Western economic system, the government had to index pensions several times in

1990. By the beginning of 1991, some 165 leva were being added monthly to every pension,

casting doubt on the long-term possibility of maintaining the program. The ratio of Bulgaria's

pensioners to its total population was the largest in the world, almost twice that of most Western

countries. Because the society was aging, some experts declared that workers should be

encouraged to remain in the work force and participate actively in society much longer than had

been the practice under the communist regimes.

In early 1991, in a further effort to keep pace with the rising cost of living, the Council of

Ministers established a new minimum wage and new subsidy levels for all social welfare

programs. Anyone who had received the old monthly minimum wage of 165 leva would now be

compensated 270 leva to provide for a new minimum wage of 435 leva. This minimum wage

was subsequently changed three times in 1991, peaking at 518 leva. The 1991 program also gave

242 leva to pregnant or nursing women and to those on temporary workers' disability. Child-care

compensation for households with children under three years of age was raised to 90 leva, with a

monthly supplement of 100 leva per child. In 1991 several cost-of-living increases were added to

those categories as well. In 1991 unemployment compensation was set at 270 leva per month;

students over eighteen received 130 leva per month; graduate students, 230 leva. Those

payments were funded from the state budget and from enterprise salary budgets, neither of which

seemed adequate to keep pace with rapidly changing prices in 1991. Under socialism all citizens

who had been awarded the title "active fighter against fascism and capitalism" for military or

civilian contributions in World War II received a large pension and special privileges such as

free public transportation, free medical prescriptions, and free vacations at special resorts. After

much controversy, those privileges were abolished in 1990.

Legal System In Bulgaria

Guided by the striving for transition to a market economy and encouragement of foreign investments the Bulgarian Parliament passed a series of laws: Law on Commerce, Law on Foreign Investments, Law on Banks, Law on Insurance, Law on Corporate Taxation, Value Added Tax Law, Law on Excise Duties, Income Tax Law; Concessions Law; Law on Transformation and Privatization of State-Owned and Municipal Enterprises, Law on Protection of Competition, Law on Cooperatives, Law on International Commercial Arbitration, Equal rights and position of the Bulgarian and the foreign subjects.

Priority aspects of the business activities of the foreign persons are legally regulated likewise in the Constitution of the Republic of Bulgaria, in the Council of Ministers, and in some other operative legal acts. Bulgaria has concluded bilateral agreements for the mutual protection of investments with various countries like Germany, France, Italy, China, USA and Finland; agreements for economic and trade cooperation with Italy, Germany and the United Kingdom. There is an unlimited foreign participation in all forms of business activity registered in Bulgaria.

The forms of activity in Bulgaria are: a branch; a representative office; a private merchant; a limited liability company (single-person or with the capital of several persons); an unlimited partnership; a public limited company; a limited partnership; holdings; cooperative; a joint stock company; a sole trader; a joint venture. Private merchants, branches and representations aren’t independent legal entities. Branch offices may engage in economic activities; they have their own property and compile a separate balance sheet. Representation offices may not engage in economic activities. Holdings and cooperatives are legal entities.

The forms of business organization, save representative offices and co-operatives, are governed by the Commerce Act 1991, as for certain types of companies (e.g., banks, insurance companies, public companies) special rules apply. Representative offices and co-operatives are regulated respectively by the Foreign Investments Act 1997 and by the Co-operatives Act 1999. The most appropriate types of companies for conducting business in Bulgaria are the limited liability and the joint-stock company, including in the form of a single-member company. These types of companies must be entered into the commercial register of the relevant district court.

Private Limited Company is a commercial company, whose capital is formed by the quotas

(shares) of its shareholders. The members' liability is limited to the amount of the capital they

have subscribed. A private limited liability company must be founded by at least two persons,

including foreign natural or legal persons. The minimum authorized capital is BGN 5,000. At

least 70% of the capital must be paid before registration. One person owns a private limited

company, including a foreign individual or legal entity. The sole owner exercises the powers of

both the general meeting and the manager, unless another manager has been appointed to run the

company. The sole owner's liability is limited to the amount of the capital subscribed.

Joint-Stock Company is a company whose capital is divided into shares, each of a par value of at least BGN 0,1. Any higher par value must be divisible by 100. The company is liable to its creditors to the extent of its assets. A Joint-Stock Company is required to have no fewer than two shareholders, including foreign individuals and legal persons. The only exception to this rule occurs when the State is the only founder and, therefore, the sole owner of the whole capital of the company. In this case we have a one-member public limited company. The minimum capital is BGN 50,000 or BGN 100,000 if the capital is raised by subscription. A higher minimum capital is required to establish a bank, insurance company or an investment company: banks - BGN 10,000,000; Insurance companies- BGN 2,000,000 for life insurance and personal accident insurance- BGN 3,000,000 for property insurance- BGN 4,000,000 for reinsurance; Investment companies - BGN 500,000,000

Public Company is a new type of joint-stock company introduced by the Securities, Stock Exchanges and Investment Companies Act, now repealed by the Public Offering of Securities Act (POSA). A company must register as public where it makes a primary offering of shares; or its shares are registered for trading on an organized securities market. Another way to create a public company is through a business combination involving at least one public company - the surviving company will be public, too.

Holding company is any joint-stock company, partnership limited by shares or private limited company. A holding company can hold interest in any form or participate in the management of and control over other companies. It can also conduct its own business, or hold interest in other companies and control them. The activities a holding can perform or is disallowed to perform are exhaustively enumerated in the Commerce Act.

Branch - foreign legal entities registered abroad, as well as foreign individuals or persons other than legal entities can register a branch in Bulgaria if fully incorporated and entitled to conduct business activities under their national law. A branch of a foreign person is part of its parent company, but has a different seat. A branch is not a legal entity. However, it must keep account books just like independent legal entities do. Although branches are not legal persons, branches of non-resident companies have separate balance sheet and profit and loss account. They are subject to corporate income tax at the standard rate of 20%, and to other general taxes too. Foreign persons, entitled to engage in business activity under their national law, can set up representative offices.

Representative offices are not legal entities and may not engage in economic activities. They are not subject to corporate taxation.

Joint Venture is a company formed jointly by a Bulgarian and a foreign partner. The extent of the foreign participation in a joint venture is not limited. Joint ventures must take one of the forms of business entities under the Commerce Act. Establishing a joint venture is one of the forms of investing in Bulgaria. Other forms of business organizations are:

General Partnership is a company founded by at least two partners for the purpose of engaging in commercial transactions under a joint business name. The partners bear joint and unlimited liability. A foreign person must be resident in Bulgaria in order to participate in a general partnership. There are no requirements for minimum or maximum amount of registered capital.

Limited Partnership is a company founded by two or more persons for the purpose of engaging in commercial transactions under a joint business name. In a limited partnership there are one or more general partners, bearing unlimited liability, and one or more limited partners, whose liability is limited to the extend of their agreed capital contribution.

Partnership Limited by share is a transitional entity between a joint-stock company and a limited partnership, and shares features of both legal forms. A partnership limited by shares has general partners, who have unlimited liability, and at least three limited partners, whose liability is limited to the extent of their shareholding. To be able to participate in a partnership limited by shares the foreign general partners must be residents in Bulgaria.

Co-operative Society - a co-operative is a voluntary society of individuals, with a non-fixed capital and a non-fixed number of members, who carry out economic and other activities to satisfy their interests, by mutual aid and co-operation. A co-operative is a legal entity and is deemed a merchant under the Commerce Act. Co-operative members can only be individuals, at least 7 in number. To participate in a co-operative, foreign person should have permanent residence in Bulgaria.

Sole Trader - any capable individual, residing in the country, can register as a sole trader.

State Companies - they exist under the forms of one-member private limited or joint-stock companies where the quotas/shares are solely owned by the State. These forms of business are established to facilitate the process of privatization of the state companies through the sale of their shares to private persons.

Municipal Companies - the above mentioned in respect of the State and the its fully or partially owned companies is accordingly relevant to the municipalities and their companies.

Taxes. Bulgaria has signed agreements for avoiding double taxation with 41 countries. A company is resident in Bulgaria for tax purposes if it is registered in Bulgaria. Companies resident in Bulgaria are subject to tax on their worldwide income. Foreign entities are subject to tax on their Bulgarian-source income, but their Bulgarian branches are considered Bulgarian resident companies for tax purposes. Corporate income tax Under the Corporate Income Tax Act (CITA) states that all companies and partnerships are liable to corporate income tax. Tax on insurance and re-insurance premiums Insurance companies pay one-time final tax on insurance premiums and on any other kind of income and are not obliged to pay corporate income taxes separately for their activities other than insurance or re-insurance. The rate of the special tax for insurance companies is 7%, except for life insurance companies whose income will be taxed at 2%. Entertainment and representative expenses and business gifts, that do not bear the trademark or the business name of the company, as well as donations and sponsorships, which are not accounted for as expenses, are subject to a final 25% tax. Social expenses representing fringe benefits in kind, as well as expenses for maintenance, repair and exploitation of cars are subject to a final 20% tax. Capital gains are included in the corporate income and taxed at the full corporate tax rate.

Foreign income. Income, derived outside Bulgaria by resident entities and branches of non-residents, is included in the taxable base for corporate income tax purposes. Resident entities utilize tax credit for the foreign source income, which is taxed abroad. The tax credit is limited to the amount of the Bulgarian tax obligation, which would have been levied if the profit or income had originated from Bulgaria. Loses are carried forward over the following five years (ten years - for banks). Carry-forward of foreign source losses is restricted. Loss carry-back is not permitted.

Tax Exemptions. Entities, investing in regions with a high unemployment, enjoy a reduction of the corporate income tax if the investment is in the form of acquisition, modernization or reconstruction of tangible fixed assets such as buildings, equipment, transmitters, electricity transmitters, and telecommunication lines. The fund for the investment is generated from the contributions made by shareholders for acquisition of new shares (including on incorporation) in the company making the investment. If the requirements for the tax reduction are met the corporate tax is reduced by an amount representing 10% of the amount of the share contributions used in the above manner. The sum for the reduction is accounted for as reserves and if greater than the corporate tax in the respective year it can be used to reduce the corporate tax in the following five years.

Violations and Fines. A fine of at least BGN 100, but not exceeding BGN 500, shall be imposed on any person under an obligation pursuant to the Commerce Law which does not apply for registration within the prescribed time periods or does not present documents or signatures provided for in this Law. If, after a fine has been imposed, the person under an obligation does not apply for registration or does not present the documents or signatures within the time period determined by the court, further fines shall be imposed upon such person until the acts are performed. Fines shall also be imposed upon officials who, when they are obliged to do so: have not informed officially the respective district court of the occurrence of a circumstance which is subject to registration, and do not undertake the necessary action for registration. The statements for establishing the violations shall be drawn up by the mayors of communities, and the penal orders shall be issued by the mayors of municipalities or persons designated by them. The establishment of the violations, the issuing, appeal and enforcement of the penal orders shall be done pursuant to the Law on Administrative Violations and Penalties.

Bulgarian intellectual property legislation has been strengthened recently, and now includes modern patent and copyright laws and criminal penalties for copyright infringement. Bulgarian legislation in this area is considered to be among the most modern in Central and Eastern Europe. Infringement of trademarks is a problem in Bulgaria for many U.S. manufacturers. While the law allows for confiscation of offending products, infringement is deemed a misdemeanor under the Penal Code and subject to a nominal fine that does not act as a deterrent to illegal activities. However, the competition law provides for fines of up to BGN 500,000 for companies, which use misleading packaging, trademarks or other signs, which injure the interest of competitors.

Bulgaria made the most difficult part of the transition. The Stability Pact, a comprehensive regional plan for economic development, democratization and security, will lead to new and expanded trade and investment opportunities in Bulgaria over the long term. The U.S. Government vigorously supports efforts to bring Stability Pact benefits to Bulgaria. The Bulgarian Government will create conditions for opening of new jobs, for elimination of the bureaucratic obstacles and difficulties in business, for tax burden alleviation, for easier and quicker access to financial and material resources for development of production and trade.

POLITICAL SYSTEM/ GOVERNMENT

Having fought on the losing side in both World Wars, Bulgaria fell within the Soviet sphere of influence and become a People’s Republic in 1946. Communist domination ended in 1991 within the dissolution of the USSR, and Bulgaria began the contentious process of moving toward political democracy and a market economy while combating inflation, unemployment, corruption, and crime. Today, reforms and democratization keep Bulgaria on a path toward eventual integration into the EU and NATO.

Besides that, Bulgaria has the following active international organization participation: ACCT, BIS, BSEC, CCC, EBRD, EU (applicant), FAO, IAEA, IBRD, ICAO, ICFTU, Inmarset, Intelsat (non-signatory user), Interpol, NAM (quest), WEU (associate partner).

Ambassador Snezhana Botusharova carries the diplomatic representation of Bulgaria in U.S. The Bulgarian flag has three equal horizontal bands of white (top), green, and red; the national emblem formerly on the hoist side of the white stripe has been removed. It contained a rampant lion within a wreath of wheatears below a red five-pointed star and above a ribbon bearing the dates 681 (first Bulgarian state established) and 1944 (liberation from Nazi control).

POLITICAL RCONOMY-OVERVIEW

In April 1997, the current ruling Union of Democratic Forces (UDF) government won

pre-term parliamentary elections and introduced an IMF currency board system which succeeded

in stabilizing the economy. The triple digit inflation of 1996 and 1997 has given way to an

official consumer price increase of 6,2% in 1999. Following declines in GDP in both 1996 and

1997, the economy grew an officially estimated 3,5% in 1998 and 2,5% in 1999. In September

1998, the IMF approved a three year Extended Fund Facility that provides credits worth

approximately $900 million, designed to support Bulgaria’s reform efforts. In 1999, an

unfavorable international environment- primarily caused by the Kosovo conflict- and structural

reforms slowed economic growth, but forecasters are predicting accelerated growth over the next

several years. The government’s structural reform program includes: (a) privatization and, where

appropriate, liquidation of state-owned enterprises (SOEs); (b) liberalization of agricultural

policies, including creating conditions for the development of a land market; (c) reform of the

country’s social insurance programs; and (d) reforms to strengthen contract enforcement.

THE GOVERNMENT

We begin this section with the extract from the Chapter 1 Fundamental Principles,

Article1:

“(1) Bulgaria is a republic with a parliamentary form of government.

(2) The entire power of the state shall derive from the people. The people shall

exercise this power directly and through the bodies established by this Constitution.

(3) No part of the people, no political party nor any other organization, state

institution, or individual shall usurp the expression of the popular sovereignty.”

Bulgaria is a Parliamentary Republic and the Legislature is the basic power within

the country. The National Assembly is vested with the legislative power and exercises

parliamentary control. Its mandate is for a term of four years. The Council of Ministers is the

principal body of the executive branch. Chaired by the Prime Minister, it heads and implements

the domestic and the foreign policy of the state, ensures the public order and the national

security, exercises the overall guidance over the state administration and the Armed Forces. The

Prime Minister designate is nominated by the largest parliamentary group and is given a mandate

by the President to form a cabinet. The proposed Council of Ministers is elected by the national

Assembly. The activity of the Council of Ministers is under the direct control of the National

Assembly. Individual ministers and the Prime Minister are obligated to answer questions and

interpellations addressed by members of the National Assembly.

The statute and the competence of the local bodies of the executive branch depend

on the territorial division of the Republic of Bulgaria. The municipality is the basic

administrative territorial unit at the level of which self-government is exercised. The region is an

administrative territorial unit where the state authority is decentralized for the purpose of

pursuing an effective regional policy. A regional governor, appointed by the Council of

Ministers, performs the government of the region.

The Supreme Legislative body in the country is the National Assembly, which exercises

parliamentary control over the government. The judiciary is independent but continued to

struggle with structural and staffing problems. Most citizens have little confidence in their legal

system.

HUMAN RIGHTS PRACTICES IN BULGARIA

Most security services are the responsibility of the Ministry of the Interior, which

controls the police, the National Security Service (civilian intelligence), internal security troops,

border guards, and Special Forces. A number of persons known to be involved in repressive

activities during the communist regime returned to senior-level positions in the security services

in 1995. Some members of the police force committed serious human rights abuses.

The post-communist economy remains heavily dependent on state enterprises. Most

people are employed in the industrials and service sectors; key industries include food

processing, chemical and oil processing, metallurgy, and energy. Principal exports are

agricultural products, cigarettes and tobacco, chemicals, and metal products. Continued political

and social resistance has retarded the transformation of the economy into a market-oriented

system. Privatization of the large communist-era state enterprises has been very slow and

is the main reason for Bulgaria’s economic stagnation. The government is now developing a

mass privatization program, which (if successfully implemented) would partially address this

problem. The service and consumer goods sectors in private hands continued to be the most

vibrant. Although all indicators point to a reviving economy this year (2001), the last several

years’ decline has affected the employment of people from ethnic minorities disproportionately.

The annual per capita Gross Domestic Product of $1.300 provides a low standard of living.

The government generally respected the human rights of its citizens, but problems

remained in some areas. Constitutional restrictions on political parties formed on ethnic, racial,

or religious lines effectively limit participation. There were several reports that police used

unwarranted lethal force against suspects and minorities, and security forces beat suspects and

inmates. Human rights observers charged that the security forces are not sufficiently accountable

to Parliament or to society and that the resultant climate of impunity is a major obstacle to

ending police abuses. Prison conditions are harsh, and pretrial detention is often prolonged.

Mistreatment of ethnic minorities by the population at large is a serious problem, and both the

government and the private citizens continued to obstruct the activities of some non-Eastern

Orthodox religious groups. Discrimination and violence against women and Roma are serious

problems.

SPECIAL ECONOMIC CIRCUMSTANCES

Bulgaria is still a largely cash economy. Visitors should exchange cash at banks or

Change Bureaus. Some Change Bureaus charge commissions on both cash and travelers’ check

transactions, which are not clearly posted. People on the street who offer high rates of exchange

are confidence tricksters intent on swindling the unwary traveler. Old, dirty or very worn

denomination bank notes are often not accepted at banks or Change Bureaus. Major branches of

the following Bulgarian banks will cash travelers’ checks on the spot for Leva, the Bulgarian

currency: Bulbank, Bulgarian Postbank, Biochim, First Investment Bank and United Bulgarian

Bank (UBB). UBB also serves as a Western Union agent and provides direct transfer of money

to travelers in need. ATM cash machines are increasing in numbers in Sofia and other major

cities. Most shops, hotels, and restaurants, with the exception of major hotels, still do not accept

travelers’ checks or credit cards. Due to the potential of fraud and other criminal activity credit

cards and ATM’s should be used with caution. On July 5 1999, the Lev was re-denominated at a

rate of 1,000 old Leva to one new Lev.

BULGARIA AND NATO: LETTING NATO FORCES USE BULGARIAN TERRITORY

In Sofia (March 29, 2001), Bulgarian Foreign Minister Nadezhda Mikhailova said on

Thursday an agreement with NATO now before parliament would allow alliance forces to use

Bulgarian territory in the event on a Balkan crisis.

The government has asked parliament to ratify the agreement, which was signed in

Brussels last week. Ratification is expected on Friday or early next week. The text of the

agreement and an accompanying note from the government say Bulgaria would allow NATO

forces taking part in operations to secure peace in the Balkans to use its land, air and sea space.

Western diplomats say that quick expansion of NATO is unlikely, adding that states like

Bulgaria has first to reform their armies and prove themselves in regional cooperation.

THE BALKAN PROBLEM IN BULGARIA

Bulgaria’s President Peter Stoyanov said on March 31, 2001 that recasting Balkan

borders along ethic lines would be disastrous for the volatile region.” Redrawing borders in the

Balkans in search of an identity for newly formed States based on ethnic or religious

homogeneity threatens to destroy the very foundation of European civilization”, Stoyanov told at

a conference in Sofia.

His comments came after respected Balkans watchdog the International Crisis Group said

that the West should stop trying to prevent the break-up of what remains of the former

Yugoslavia. Western powers fear the break-up of federal Yugoslavia could fuel ethnic violence

and trigger demands for more border changes in the region where a large ethnics Albanian

community straddles several internal and international frontiers.

Stoyanov said ethnic Albans in Yugoslavia had a right to live under a democratic system.

He said the West should support promotion of civil societies in the Balkans to foster ethnic

tolerance and help the region shed its image as Europe’s trouble spot.

Bulgaria suffered economic losses but remained untouched during a decade of wars

accompanying the break-up of the former Yugoslavia. It allowed NATO to use its airspace

during the 1999 bombing of Yugoslav forces, which drove them out of Kosovo.

But concerns have been raised in Bulgaria by the recent fighting between neighboring

Macedonia and ethnic Albanian guerrillas along the Macedonia-Kosovo border.

BULGARIA SETS STAGE FOR PARLIAMENTARY POLL

Bulgarian president peter Stoyanov on March 29, 2001 set June 17 as the date of a parliamentary

elections, expected to be a tight race in which exiled King Simeon II has emerged as a possible

wild-card candidate. The parliamentary poll is also sure to be overshadowed by the crisis in

neighboring Macedonia which has unnerved politicians, scared citizens and further underscored

investor wariness over the Balkan region.

The government of Ivan Kostov (he leads UDF, the center-right party), is the first in the

Balkan state to serve a full four-year mandate since the end of one-party rule in 1989.

The government’s popularity has waned due to falling living standards, painful market

reforms and a series of public scandals involving some top UDF officials.

Opinion polls show that the public is desperate for an alternative and the King has

emerged as a potentially welcome third force.

IMF APPROVES $66 MLN LOAN INSTALLMENT FOR BULGARIA

The International Monetary Fund said it had approved a $66 million loan to Bulgaria, the

final disbursement under a three-year deal which helped the Balkan country’s recovery from a

1997 financial crisis.

The Washington-based lending agency said its decision to disburse the funds came after

the completion of a review of Bulgaria’s economic performance under a lending agreement

approved in September 1998.

The IMF said Bulgaria had maid significant progress in its transition to a full market

economy. In a written statement, the IMF official praised government leaders in Sofia for

keeping inflation and the current account deficit under control.

The IMF acting chairman, Fischer, said Bulgaria’s economic growth was expected to remain

strong. However, Fischer warned there were still some areas that bear watching. Fischer said: ”A

strict incomes policy for state enterprises and steps to improve labor market flexibility and the

business environment will help enhance competitiveness.”

ECONOMIC ENVIRONMENT IN BULGARIA

In Bulgaria 2000 passed to confirm the financial stabilization in the country, supported by

the currency board arrangement, which was introduced in mid-1999. The Government of

Bulgaria (GOB) was able to achieve most of the preliminary set indicator, co-coordinated with

the IMF and the World Bank for the development of the country. Tight constraints on fiscal and

monetary policy yielded remarkably low inflation at just 1%, budget surplus and moderate

current account deficit. The GDP is finally on a rise after a long series of collapse, now estimated

to have grown by 3.5%. Improved legislation and supervision in the banking sector has

constructed more prudence and eventually ease in the crediting policies to support revival in the

real sector. However, the needed real sector restructuring was again delayed, which could turn

into a major obstacle for the possibility of future growth and the ability of maintaining economic

stability over the medium term. Privatisation of the major enterprises from the banking and real

sector is still pending, and unpopular measures for the liquidation of loss-accumulating units will

still have to be taken, thus testing the political will and decisiveness of the government in the eve

of coming elections.

Economic figures announced by the authorities are strongly encouraging for the country’s

potential, though testing times still lie ahead. Growth opportunities in the short run may turn

strongly vulnerable to outside effects and rapid measures for recovery of the real sector will be

vital. New laws to support pension reform and capital market activities are already in the

pipeline.

Source: Monthly Bulletins

CURRENCY

The peg of the Bulgarian lev to the Deutsche mark at an exchange rate of BGL 1,000 per

1 DEM proved its efficiency as an important factor for the financial stabilisation in the country.

The turmoil of early 1999 quickly faded away and activities were brought to normal pace.

Eventually, a draft for denomination of the national currency was introduced, envisaging a new

currency to be put in circulation with three zeros less than the present. Thus as of 5 July, 2001

one new Bulgarian lev equals one Deutsche mark. A significant step made by the authorities has

been the acceptation of the obligations of Article VIII, Sections 2,3, and 4 of the IMF Articles of

Agreement, with effect as of 24 September 2000. No restrictions are now imposed on making of

payments and transfers for current international transactions. Despite the existing pressure for

upward adjustment of the anchor level, the general opinion is that there is enough political will to

defend the peg at the current position of BGL 1,000 per DEM. As of January 2001, the

introduction of the European currency brought to a fixed rate to the Euro at 1997.83 levs.

INFLATION

Anchoring of the Bulgarian lev to the German mark allowed the continuous and

uncontrollable depreciation of the national currency to be ceased. This was to help subdue

inflation in the country, which had skyrocketed to the cumulative 578.6% in 1999. In 2000 y-o-y

CPI was down to 1%, remarkably outperforming the projected annual 16.4% by the government.

In this aspect the country was the best performer among the countries in transition. Inflation

moves, however, were not flat within the year, oscillating between the steep 3% of September

and negative 1.9% in June computed on a monthly basis. Such slides in inflation were not

regarded as a positive trend as they revealed weaker purchasing power of the population and

contraction in the domestic consumption. A major influence had the corporate cost cutting in the

state sector, stemming from the necessity to rehabilitate or close the highly indebted and

unprofitable enterprises. External deflationary forces also occurred as the national currency

strengthened against the dollar and dragged on lower import prices and weaker export

opportunities.

Source: Monthly Bulletins

WAGES AND UNEMPLOYMENT

The CPI-adjusted increase in the wages was 22.4% in 2000, reaching USD 111.4 vs the

average of USD 78.2 in 1999. Pensions also grew, noting an increase of 36.3%, and now

accounting for USD 35 on average. In view of the modest GDP per capita, no vigorous increases

are expected to occur in 2001. The government has already set a 10% limit for the budget sector,

and 100 major state-owned companies faced salary restrictions to the amounts reported as at the

end of the past September. The labour productivity was estimated only modest according to

preliminary figures.

Rate of unemployment was also reduced to less than 12% in the second half of the year

pushing away the turmoil of five years ago, when initial stages of restructuring brought about

unemployment rate of over 15%. Significant monthly fluctuations are, however, a fact as

employment base is the country is estimated to just slightly over 2 million persons. GDP

(Growth Domestic Product).

The GDP is on a rise, expected to note the peak acceleration of the 90’saccording to preliminary data. Government estimates point on growth of 3.5% on annual basis. The value of Bulgaria’s GDP now amounts to around BGL 22,4297 trillion according to preliminary data, which equals about USD 12.6 billion. Thus the increase in the dollar value of the output reached over 20% compared to the 1999 achievements. Official statistics for the period January-September reported a rise of 4.3% in the real GDP.

Monthly Bulletins, BNB, press releases

Traditionally, the major contributor to the country’s GDP was the services sector, with a

share of approximately 50%. Estimates for the nine months of the year, provided by the National

Statistics Institute, report a robust advance in the sector, which had already outperformed its total

1999 results on the basis of non-deflated prices. Industry and agricultural sector accounted for 30

and 20% respectively, generally in line with the proceeding years’ structure. For 1999 the

authorities projected a further boost of 3.7% in the country’s GDP.

CURRENT ACOUNT AND TRADE BALANCE

In line with all expectations, in 2001 the country’s current account shifted into a deficit,

estimated to USD 272.7 million. The decline of around $700 million from the 1999 result was

dragged by substantial deterioration in the trade balance, now reported to deficit of USD 329.5

million.

Source: Bulgarian National Bank

Exports fell by 13.1% on annual basis, triggered by the low competitiveness of Bulgarian

goods and shrinking international demand for basic commodities as a result of the crisis at the

Russian and Asian markets. The negative trend was intensified in the second half of the year,

when semi-annual exports dropped by 17.4% compared to the corresponding period of the

preceding year. Most severe was the decrease in the export of chemicals and fuel, shrinking by

29.8 and 32.5% respectively. Growth was noted only in the group of textiles, leather, apparel and

footwear, which increased exports by 7 .8% over the 1999 year-end, revealing the positive

results of the faster privatisation in the sector. Imports; On the other hand, imports grew - albeit

slightly, exceeding the preceding year’s figure by 1.4% and by December amounting to USD

4,623.5 million. The value of the imported consumer goods noted a leap of 41.8% for the year,

which is not surprising for a country with a currency board and anchored national currency. This,

however, was strongly unfavourable for the weak domestic production, as retail consumption

grew by merely 5.1% within the year. Sovereign Debt: Country’s gross foreign debt bounced to

over $10 billion from the end-1999 level of $9.68 billion, now heading to reach in dollar value

the figures of 2000 and 1999. A major increase faced the long-term public debt from $8.5 billion

at the end of 1999 to over $9 billion, reflecting loans extended by the IMF and the World Bank.

For 2001 Bulgaria has scheduled foreign debt servicing to the total of USD 882.6 million, half of

which stands for interest payments, mostly on its Brady bonds. Reforming: Privatisation in the

banking sector continued with the sale of many banks in Bulgaria such as, Bulgarian Post Bank,

which ranks among the seven biggest financial institutions in Bulgaria.

CONCLUSION

In conclusion, the economy in Bulgaria in getting better little by little. The GDP is

finally on a rise after a long series of collapse, now estimate to have grown by 3.5%. A draft for

denomination of the national currency was introduced, envisaging a new currency to be put in

circulation with three zeros less than the present. Thus as of 5 July 2001 one new Bulgarian

equals one Deutsche mark. The CPI adjusted increase in the wages was 22.4% in 2000, reaching

USD 111.4 vs the average of USD78.20in 1999. The GDP is increasing, expected to note the

peak acceleration of the 90’s according to the preliminary data. Government estimates point on

growth of 3.55on annual basis. However, Exports fell by 13.1% on annual basis, triggered by

the low competitiveness of Bulgarian goods and shrinking international demand for basic

commodities as a result of the crisis in the Russian and Asian markets. On the other hand,

Imports grew slightly, exceeding the preceding year’s figure by 1.4%. Bulgaria is also facing

bank privatization. For an investor Bulgaria offers many opportunities. At the time, investing in

the country could be a little bit risky, but most the forecasts indicate that the country’s resources

and key geographical position can be heavily utilized in the near future without such a high risk

of potential loss.

Word Count: 8915

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